Nobody knows what the natural rate of unemployment is today

See Is the Phillips Curve Dead? And Other Questions for the Fed: Before adjusting interest rates again this year, the central bank should focus on the fundamentals by Alan Blinder. I provide a graphical explanation at the end. Excerpts:

"Most economists determine whether the economy needs stimulus by comparing current and projected unemployment rates with a measure called the Nairu—the nonaccelerating inflation rate of unemployment (sometimes called the natural rate of unemployment). That number is supposed to mark the dividing line between unemployment so high that it pulls inflation down and unemployment so low that is pushes inflation up

Trouble is, nobody knows where the Nairu is today. The FOMC is acting under the assumption that today’s 4.1% unemployment rate is below Nairu, which it currently pegs at 4.5%. That could be right. But a year ago the committee thought Nairu was 4.7%, and three years ago it pegged it at 5.1%. The estimate kept falling because inflation stubbornly refused to rise despite low unemployment.

Here’s my own view, but it’s no more than an educated guess: The unemployment rate has settled at 4.1% for six months now, and inflation is creeping up very slightly. That suggests a Nairu in the 4% to 4.5% range, just a pinch lower than what the Fed now believes. But remember, the Fed keeps lowering its estimate.

Now to the second question: With the federal funds rate in the 1.5% to 1.75% range today, is monetary policy stimulating the economy or restraining it? To answer that question in the past, economists have compared the real interest rate—the funds rate minus inflation—to another key dividing line: the neutral (or natural) real interest rate, which Wall Street calls r* (pronounced “r-star”). Here’s the idea: When the real federal funds rate is above r*, that means money is “tight,” the Fed is holding back demand and inflation should fall. When the real federal funds rate is below r*, money is “loose,” the Fed is pushing demand up, and inflation should rise.

But where is that dividing line today? That’s a complicated question, because r* depends on many factors beyond the Fed’s control. If any of those other factors change, so will r*. The most prominent example today is fiscal policy, which has recently changed quite a lot due to large tax cuts and a bipartisan spending spree. These developments have presumably pushed the neutral interest rate above the Fed’s semiofficial estimate made last fall, which was 0.4%.

Where are we today? The federal funds rate is at 1.7%, while inflation is at 2% and inching up. This means the real federal funds rate—the difference between those two metrics—is slightly negative and thus almost certainly below the neutral rate, though perhaps not by a huge amount. The Fed’s current monetary policy is therefore still slightly stimulative"

"When I was the Fed’s vice chairman in the 1990s, we felt we had a reasonable handle on the Phillips curve: If unemployment rose by 1 percentage point for a year, that would knock about half a percentage point off the inflation rate, plus or minus. That rule of thumb worked pretty well back then. But not lately.

Since 2000, the correlation between unemployment and changes in inflation is nearly zero."

Now my graphical explanation.

The more money in the economy, or the lower the interest rate, the more demand for all goods and services, holding all other factors constant (this total demand is called aggregate demand or AD). The price level in the economy and the total output or quantity produced in the economy is determined by the interaction of AD and aggregate supply (in this case I am interested in something called short-run AS or SRAS-so yes there is a long-run AS but that is not the important issue here although in the long run we will come back to Q_F with even more inflation if we go past it in the short run). 

The full-employment GDP (Q_F in the graph below) is the level of GDP that gives us the natural rate of unemployment. If we move from AD1 to AD2, we will still have very small price increases while having a big increase in GDP which will help lower the unemployment rate. But if we go past AD2 (if interest rates get too low), then we get much bigger price increases than for AD increases to the left of Q_F. So we want the Fed to set interest rates so that we are at AD2. But no one knows for sure if we are at AD2 or not.

The SRAS also keeps getting steeper since inefficiency increases as we get closer to (and beyond)  Q_F. As inefficiency increases, costs increase faster and faster. This gets passed on to the consumer in the form of ever faster increases in prices. The slope has to get steeper to reflect this. The inefficiencies come in partly because we keep bringing less efficient resources into production the more we try to produce.

If a company has 4 idle factories and demand picks up, it brings the most efficient of the four back online, then the next one, and so on. The demand for resources might be increasing at an increasing rate.

 
Related posts

Fed Officials Disagree On Threat Of Inflation (from 2009)

Fed Chair Janet Yellen: "there remains considerable slack in the economy" (from 2014)

Why do employers pay extra money to people who study a bunch of subjects in college that they don’t actually need you to know? Signaling

See School Is Expensive. Is It Worth It? For your kids, yes—at least assuming they graduate. But the author of ‘The Case Against Education’ says the benefits to society are vastly overstated. WSJ interview with James Taranto and economics professor Bryan Caplan. Excerpts:

"Mr. Caplan’s case against education begins by acknowledging the case in favor of getting one. “It is individually very fruitful, and individually lucrative,” he says. Full-time workers with a bachelor’s degree, on average, “are making 73% more than high-school graduates.” Workers who finished high school but not college earn 30% more than high-school dropouts. Part of the difference is mere correlation: Mr. Caplan says if you adjust for pre-existing advantages like intelligence and family background, one-fifth to two-fifths of the education premium goes away. Even so, it really does pay to finish school."

"“Why is it that employers would pay all of this extra money for you to go and study a bunch of subjects that they don’t actually need you to know?”

The answer is “signaling,” an economic concept Mr. Caplan explains with an analogy: “There’s two ways to raise the value of a diamond. One of them is, you get an expert gemsmith to cut the diamond perfectly, to make it a wonderful diamond.” That adds value by making the stone objectively better—like human capital in the education context. The other way: “You get a guy with an eyepiece to look at it and go, ‘Oh yeah, yeah, this is great—it’s wonderful, flawless.’ Then he puts a little sticker on it saying ‘triple-A diamond.’ ” That’s signaling. The jewel is the same, but it’s certified.

Suppose you have a bachelor’s in philosophy from Mr. Caplan’s doctoral alma mater, and you’re applying for a job somewhere other than a college philosophy department. What does the sheepskin signal? His answer is threefold: intelligence, work ethic and conformity. “Finishing a philosophy degree from Princeton—most people are not smart enough to do that,” he says. At the same time, “you could be very smart and still fail philosophy at Princeton, because you don’t put in the time and effort to go and pass your classes.”

As for conformity, Mr. Caplan puts the signal into words: “I understand what society expects of me. I’m willing to do it; I’m not going to complain about it; I’m just going to comply. I’m not going to sit around saying, ‘Why do we have to do this stuff? Can’t we do it some other way? I don’t feel like it!’ ” It’s easy to gainsay the value of conformity, a trait the spectacularly successful often lack. Think Mark Zuckerberg. But then imagine how he would have fared as a 21-year-old college dropout applying for an entry-level corporate job.

Mr. Caplan believes these signals are reliable, that college graduates generally do make better employees than nongraduates. Thus it is rational for employers to favor them, and for young people to go through school."

"Because educational signaling is zero-sum, and because its benefits tend to flow to those who were well-off to begin with, the system promotes inequality without creating much wealth. Research comparing the personal and the national payoffs of schooling finds a wide discrepancy—in “the ballpark of, if a year of school for an individual raises earnings about 10%, [then] if you go and raise the education of an entire country’s workforce by a year, it seems to only raise the income of the country by about 2%.” Mr. Caplan therefore reckons that roughly 80% of the education premium comes from signaling, only 20% from marketable skills."

Also see The Philadelphia Eagles' Personnel Strategy: Targeting College Grads: Six of the Seven Players the Team Drafted This Year Are on Track to Graduate by Kevin Clark of the WSJ. It seems like NFL teams see the college degree as a signal. Exceprt:

"Philadelphia's philosophy of pursuing graduates was born when Roseman, the Eagles' general manager since 2010, and Kelly, the team's second-year coach, each discovered that teams with the most college graduates are overwhelmingly successful. Kelly learned this late in his coaching tenure at Oregon, when former Indianapolis Colts coach Tony Dungy, whose son played at Oregon, mentioned in a talk to Oregon players that in the 2000s, the two teams who happened to have loads of graduates were the Colts and New England Patriots. Those teams dominated the first decade of this century.

"I didn't know he'd take it this far," Dungy said, jokingly.

In a private conversation later, Dungy, now an analyst for NBC, told Kelly that his research showed players with degrees were more likely to earn a second NFL contract and make more money. He told Kelly "the guys with degrees have what you are looking for. They are driven. If it's between two players, a degree might tip the scale. But at the time, I don't think he was even thinking of the NFL."

But before Kelly even arrived in Philadelphia, Roseman was doing his own research. Each year, Roseman and his lieutenants take the last four teams left in the playoffs and do reports on them—studying their players' height, weight, background and virtually everything else. Through those reports came evidence that the most successful teams had many college graduates on them. When Roseman and Kelly joined forces, the plan was clear.

The trends over the last five drafts are startling. Studies show that teams who select players who spent five years in college—and thus almost always have a degree—win big. Of the three teams with the most fifth-year seniors drafted, two of them met in February's Super Bowl: the Seattle Seahawks and Denver Broncos. The Jacksonville Jaguars, who went 4-12, took the fewest.

The team that drafted the most players who stayed just three years on campus? The New York Giants, who have missed the playoffs the past two seasons. The Colts, Patriots and Washington Redskins, who have five total playoff appearances in the last two years, have taken the fewest three-year players, who rarely have college degrees.

Kelly said a degree is more than proof of intelligence. "It's also, what is their commitment?" he said. "They set goals out for themselves and can they follow through for it? A lot of people can tell you they want to do this, this and this. But look at their accomplishments."

The Eagles say they want players who are prepared, and a degree confirms that. Take wide receiver Jordan Matthews, a Vanderbilt economics major whose study habits translated perfectly to the NFL."

Related posts:

A fake job reference can be just a few clicks away.

Fake Economist Fools Portugal.

Slave Redemption in Sudan. (Fake slaves are sold to those who buy slaves and then give them their freedom)

Can A Product Work Just Because It's Expensive?. (fake medicine)

If It Pays To Have Friends, Can You Pay To Have Friends?. (you can hire fake boyfriends)

Study: Half of American Doctors Give Patients Placebos Without Telling Them.

Saudis grapple with fake street sweepers .

Rent a White Guy: Confessions of a fake businessman from Beijing (by Mitch Moxley in The Atlantic Monthly)

Can adding a phantom third story to their homes help families find a wife for their son?

How Much Has Life Expectancy Improved?

A few weeks ago, one of my classes read a chapter called "The Graying of America" in the book The Economics of Public Issues. It discussed issues like social security and how there are fewer workers paying in to the system for each person receiving money than there used to be.

It also mentioned that life expectancy in 1900 in the USA was 47 and now it is 79. But much of that is because infant mortality has fallen. With fewer babies dying before age 1 or 5, that will cause the average to go up.

But what if we look at people who make it past their infancy? See Life Expectancy by Max Roser of Our World in Data. Excerpt:

"Child mortality is defined as the number of children dying before their 5th birthday. To see how life expectancy has improved without taking child mortality into account we therefore have to look at the prospects of a child who just survived their 5th birthday: in 1841 a 5-year old could expect to live 55 years. Today a 5-year old can expect to live 82 years. An increase of 27 years.

At higher ages mortality patterns have also changed. A 50-year old could once expect to live an additional twenty years. Today the life expectancy of a 50-year old has increased to an additional 33 years."

Those numbers are for England and Wales.

There is much more interesting information at that site along with some great charts and graphs.

Here are links to two other views:

Human Lifespans Nearly Constant for 2,000 Years by Benjamin Radford, Live Science Contributor.

Human lifespans have not been constant for the last 2000 years by John Hawks. He is Professor of Anthropology at the University of Wisconsin.

(Hat tip: Ashley Powell, one of my students, who sent me all these links)

Why 2017 Was the Best Year in Human History

By Nicholas Kristof of The NY Times. Excerpts:

"2017 was probably the very best year in the long history of humanity.

A smaller share of the world’s people were hungry, impoverished or illiterate than at any time before. A smaller proportion of children died than ever before. The proportion disfigured by leprosy, blinded by diseases like trachoma or suffering from other ailments also fell."

"Every day, the number of people around the world living in extreme poverty (less than about $2 a day) goes down by 217,000, according to calculations by Max Roser, an Oxford University economist who runs a website called Our World in Data. Every day, 325,000 more people gain access to electricity. And 300,000 more gain access to clean drinking water."

"As recently as the 1960s, a majority of humans had always been illiterate and lived in extreme poverty. Now fewer than 15 percent are illiterate, and fewer than 10 percent live in extreme poverty."

"Just since 1990, the lives of more than 100 million children have been saved by vaccinations, diarrhea treatment, breast-feeding promotion and other simple steps."

"the 1950s, the U.S. also had segregation, polio and bans on interracial marriage, gay sex and birth control. Most of the world lived under dictatorships, two-thirds of parents had a child die before age 5, and it was a time of nuclear standoffs, of pea soup smog, of frequent wars, of stifling limits on women and of the worst famine in history."

"it’s also important to step back periodically. Professor Roser notes that there was never a headline saying, “The Industrial Revolution Is Happening,” even though that was the most important news of the last 250 years."

The Deficit Trials 2017 A. D.

This was a commercial back in 1986. It paints a bleak picture of America in the future, presumably caused by the growing national debt ($2 trillion then, about $21 trillion now-adjusted for inflation the 1986 figure would be about $4.4-4.5 trillion now, so we have still risen quite a bit). I think this thing is way over the top but there may be some real dangers from the debt that I mention below. You might have to watch a brief commercial for some product first. We have been covering the deficit and debt this week in my macro classes. If the embedded video does not appear, use the link below it.

Ridley Scott - W. R. Grace Deficit Trials

Real problems the national debt might cause
 
1. About 31% of the debt is owed to foreign citizens. When they get paid back, they come and buy American goods. That leaves fewer goods for Americans (who can't afford to buy as much due to higher taxes that were needed to pay back the debt). BUT THIS MIGHT NOT BE A CONCERN IF WE ORIGINALLY BORROWED THE MONEY FOR A GOOD PURPOSE.

People borrow money all the time to buy houses and cars. Then they pay it back to a person outside of their family or household. We don’t consider this a burden since the money was put to good use. Right after World War II, the national debt was 120% of the GDP. This was much higher than it is now and we survived. No one complains that we borrowed to win the war. The national debt is about 105% of the GDP now. In 1986, the year the video was made, it was about 50% of GDP.

2. Raising taxes might hurt economic incentives. At higher tax rates, people might want to work and invest less. Fewer businesses might expand and fewer news ones created since you will get to keep less profit. But again, THIS MIGHT NOT BE A CONCERN IF WE ORIGINALLY BORROWED THE MONEY FOR A GOOD PURPOSE. Also, if taxes only go up a little, and the debt is slowly paid off each year (like after WW II), it may not hurt too much.

3. We may have fewer government services in the future if we pay back the debt by lowering government spending. But this means that we are trading more government services today for fewer in the future. THIS IS NOT NECESSARILY A BAD THING IF THE MONEY IS SPENT WISELY (which everyone not might not agree on).

If taxes and interest rates are higher in the future due to the debt, that will lower our future economic growth rate. We will still probably grow, but not as much.

This site shows you the National Debt as it increases along with other interesting data http://www.usdebtclock.org/

Some related links:

S&P downgrades U.S. credit rating for first time by Zachary A. Goldfarb of The Washington Post (from 2011)

The US Doesn't Deserve a AAA Credit Rating by Marc Joffe of the Fiscal Times (from 2017)

Here's Why America Will NEVER Be Vulnerable To Foreign Debt Holders by Henry Liu of Business Insider (from 2010)

"The world’s biggest net foreign debtor, by a large margin, is the U.S." See China rebalances away from bonds to buy equities, particularly in Europe by David Marsh of MarketWatch (from 2017)

Just Four Large Countries Have a Higher Debt Burden Than the U.S.

Herfindahl-Hirschman at the Movies

By Connor Waldoch of Medium.

Disney wants to buy Fox. This week in my micro classes we are talking about mergers and when the government (Justice Department or Federal Trade Commission) might challenge mergers.

If two firms merge, the new firm, of course, has a bigger share of the market than either of the old firms. When does this gain in market share threaten competition enough to be challenged in court?

Waldoch mentions the Herfindahl–Hirschman Index HHI. The market share of each firm in an industry is squared and then all those numbers are added up to get the HHI. There are 3 categories according to Justice:

Unconcentrated Markets: HHI below 1500
Moderately Concentrated Markets: HHI between 1500 and 2500
Highly Concentrated Markets: HHI above 2500

One thing to add is that if a merger increases the HHI by more than 100 points and the new HHI of the industry is Moderately Concentrated, then the merger is likely to be challenged.

Waldoch shows a graph of what the HHI of the movie industry would have been over several years with Disney and Fox as separate companies and with them having been merged. He does not state specific numbers, but it looks like for 2016, if the two firms had merged, it would have raised the HHI of the movie industry by 500 or so points, from about 1250 to 1750. So that would make it likely to be challenged according to the guidelines. Justice is currently reviewing it.

Here is the graph Waldoch uses:

Ozzy Osbourne Makes The Economics News

See Ozzy Osbourne Brings Antitrust Lawsuit Against AEG for Tying London and L.A. Venues by Eriq Gardner of The Hollywood Reporter. Excerpt:

"On Wednesday, the heavy metal musican filed an antitrust lawsuit against AEG, alleging the entertainment industry giant is illegally tying its venues in London and Los Angeles.

"The tying arrangement at issue is so explicit and brazen that AEG has given it a name: the 'Staples Center Commitment,'" states the complaint filed in California federal court. "Through the Staples Center Commitment, AEG requires that artists and musicians cannot play London’s most essential large concert venue—the O2 Arena —unless they agree to play the Staples Center during the part of their tours that takes place in Los Angeles. Both the O2 and Staples are owned by AEG."

Osborne, represented by lawyers at the top firm of Latham & Watkins, explain that O2 is a "must have" venue for touring musicians because of its popularity and environment.

"Unlike London, however, Los Angeles is a competitive venue market— or has been since at least January 2014, when the 'Forum' reopened in Inglewood after a $100 million renovation," the complaint continues. "Artists touring in Los Angeles have therefore been able to enjoy the benefits of competition between Staples and the Forum. Ozzy would have been such an artist if AEG had not insisted, through the Staples Center Commitment, that he perform at Staples—the venue that AEG owns."

Osborne says he tried to book O2 for the "No More Tours 2" tour and requested February 2019 only to be told that it was available with the condition he play the Staples Center."

The Clayton Act of 1914 outlaws such tying contracts if they substantially lessen competition. It will be interesting to see how far this case goes and what the courts decide. It might matter if there are other venues available. A tying contract is when a firm says that "if you buy product A from us you must also buy product B."

Is There Economic And Political Meaning In "The Wizard of Oz?"

We covered international trade in my micro class recently and the text book has something about this in that chapter.

To get a handle on this, you can read Money and Politics in the Land of Oz By Quentin P. Taylor. Also, for my students, there is an article in chapter 15 of the micro book by Tucker and in chapter 18 in the macro book. Below is an excerpt from the Taylor paper:

"Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle Henry-is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?"

Now an excerpt from Tucker:

"Gold is always a fascinating story: The Wonderful Wizard of Oz was first published in 1900 and this children's tale has been interpreted as an allegory for political and economic events of the 1890s. For example, the Yellow Brick Road represents the gold standard, Oz in the title is an abbreviation for ounce, Dorothy is the naive public, Emerald City symbolizes Washington, D.C., the Tin Woodman represents the industrial worker, the Scarecrow is the farmer, and the Cyclone is a metaphor for a political revolution. In the end, Dorothy discovers magical powers in her silver shoes (changed to ruby in the 1939 film) to find her way home and not the fallacy of the Yellow Brick Road. Although the author of the story, L. Frank Baum, never stated it was his intention, it can be argued that the issue of the story concerns the election of 1896. Democratic presidential nominee William Jennings Bryan (the Cowardly Lion) supported fixing the value of the dollar to both gold and silver (bimetallism), but Republican William McKinley (the Wicked Witch) advocated using only the gold standard. Since McKinley won, the United States remained on the Yellow Brick Road."

But not everyone agrees with this. Economist Bradley Hansen wrote an article titled The Fable of the Allegory: The Wizard of Oz in Economics in the Journal of Economic Education in 2002. Here is his conclusion:

"Rockoff noted that the empirical evidence that Baum wrote The Wonderful Wizard of Oz as an allegory was slim, but he compared an allegorical interpretation to a model and suggested that “economists should not have any difficulty accepting, at least provisionally, an elegant but controversial model” (Rockoff 1990, 757). He was right—we did not have any difficulty accepting it. Despite Rockoff’s warning, we appear to have accepted the story wholeheartedly rather than provisionally, simply because of its elegance. It is as difficult to prove that The Wonderful Wizard of Oz was not a monetary allegory as it is to prove that it was. In the end, we will never know for certain what Baum was thinking when he wrote the book. I suggest that the vast majority of the evidence weighs heavily against the allegorical interpretation. It should be remembered that no record exists that Baum ever acknowledged any political meanings in the story and that no one even suggested such an interpretation until the 1960s. There certainly does not seem to be sufficient evidence to overwhelm Baum’s explicit statement in the introduction of The Wonderful Wizard of Oz that his sole purpose was to entertain children and not to impress upon them some moral. The Wonderful Wizard of Oz is a great story. Telling students that the Populist movement was like The Wonderful Wizard of Oz does seem to catch their attention. It may be a useful pedagogical tool to illuminate the debate on bimetallism, but we should stop telling our students that it was written for that purpose."

I found a review of the book in the NY Times from 1900 and it does not mention anything about OZ having political or economic meaning. The book was also made into a musical a few years later and none of the reviews of the musical mention any political or economic meaning.

Four Decades Of Disinflation

Disinflation is when the inflation rate falls. Prices rise each year or time period, but the rate of increase falls. The table below shows the annual  average inflation rate for decades starting with the 1950s. The 1970s had the highest average of 7.41%.

Decade	AVG	HIGH	LOW
1950s	2.25%	6.00%	-0.70%
1960s	2.53%	6.20%	0.70%
1970s	7.41%	13.30%	3.30%
1980s	5.14%	12.50%	1.10%
1990s	2.92%	6.10%	1.60%
2000s	2.54%	4.10%	0.10%
2010s	1.68%	3.00%	0.70%

Starting with the 1980s, each decade has had a lower average than the previous decade. For the 2010s to end up having a higher average than the 2000s, the inflation rate would need to average about 6% over the years 2018-19. That does not seem likely. So we should end up with four decades of disinflation.

The graph below shows the annual inflation rate since 1914.

San Antonio has highest credit card debt burden in US

From news4sanantonio. Excerpts:

"San Antonio has the highest credit card debt burden in the U.S., according to a new CreditCards.com report. The study looked at each of the 25 largest cities in the U.S. and compared the average credit card debt and the median income. If you go by what experts recommend and dedicate 15% of your income to credit card debt, it would take the typical San Antonio resident 22 months to get out of debt and he or she would pay $911 in interest."

"Cities with the highest credit card debt burdens:

1. San Antonio (22 months, $911 interest)
2. Miami/Ft. Lauderdale/West Palm Beach (21 months, $814 interest)
3. Houston (20 months, $799 interest)
4. Los Angeles (20 months, $745 interest)
5. Dallas (19 months, $801 interest)"

Click here to see the news release from creditcards.com

The Resource Curse

By Melissa Mittelman of Bloomberg.

In the book The Economics of Macro Issues, they mention that Russia has many resources but its per capita income is less than that of Luxembourg which has few resources. The book suggests that the economic system matters more that how many resources a country has.

Here are some excerpts from the article, including links to research which says there is no resource curse:

"Striking gold or discovering oil would seem to guarantee instant fortune. Instead, it often leads to conflict, corruption and poverty. History is full of examples of countries whose natural-resource wealth led to less economic success. Revenue from extracting raw materials might be mismanaged or embezzled by government officials, or siphoned off by foreign corporations. The bonanza might crowd out investment in other parts of the economy and make goods and services more expensive. And the country’s fiscal and economic fate might hang on volatile global commodity prices, especially for smaller and less diverse economies. All told, local populations can be left with little to show for their resources except a degraded environment. Economists and social scientists call this phenomenon “the resource curse.” Many countries are trying to determine how to prevent or reverse it."

"The average incomes of African countries, including Angola, Nigeria and Sudan, are low and their health indicators are poor, despite their abundance of oil, diamonds and other precious minerals. While oil exports prop up extensive welfare spending in Middle Eastern petro-states, they remain vulnerable to price swings and their people subject to undemocratic regimes. Brazil continues to grapple with corruption and vast, dangerous slums, though it's rich in resources as varied as oil, iron ore, coffee and soybeans."

"The British economist Richard Auty coined the term “resource curse” in a 1993 book investigating why resource-rich countries under-performed other developing economies. A 1995 study found that economies with high commodities exports grew more slowly from 1971 to 1989, even after controlling for variables such as income and investment rates. Notwithstanding a few success stories (such as Botswana), the negative correlation between raw-material exports and economic growth suggests that resource wealth at least doesn’t help. The most commonly suspected causes include under-investment in other industries (such as manufacturing), exposure to price swings, and concentration of wealth that discourages the development of a rule of law and other conditions needed for a vibrant economy. The resource curse is sometimes lumped with Dutch Disease, named for a 1960s crisis in the Netherlands after it discovered natural gas in the North Sea. It describes what happens when an event like a commodity boom makes a country’s currency more expensive and its other goods less competitive."

"Some researchers question the existence of a resource curse, suggesting that resource wealth helps economic growth after all. Others have suggested that what matters isn’t resource abundance but the amount of diversification in the economy and the strength of a country’s institutions."

"A Stanford University paper challenging the conventional account."